The enforced closure of Swiss bank BSI is rattling nerves at other financial companies based in Singapore. They worry about meeting a similar fate – a distinct possibility, according to a risk expert.
Singapore's and Switzerland's financial market regulators MAS and Finma have pulled the plug on 143-year-old Banca Svizzera Italiana: BSI will cease to exist due to its involvement in a money-laundering scandal.
The news of BSI’s closure has proven explosive in financial Singapore and put the private bank’s rivals on high alert. The case also puts MAS on the back foot: it chips away at the Mr. Clean image that the Singaporean regulator would like to have the Asian financial hub perceived as.
Singapore Doesn’t Dither
Now, official Singapore wants to make an example of BSI, sending a signal to others: ignore the rules at your peril.
Singapore authorities aren’t wasting any time with investigations into six former and current bank employees, including the former head of BSI’s Singapore branch, Hanspeter Brunner, and Yak Yew Chee, the former relationship manager for Malaysian state fund 1MDB.
The city state’s prosecutor is bringing more charges against Yeo Jiawei, MAS said on Tuesday. The former BSI financial planner may have to appear in court quite soon, part of a carefully orchestrated show of no-tolerance for financial wrong-doing.
Distressed Bankers, Frayed Nerves
The decisive action by Singapore’s authorities has made life considerably more distressing for the city state’s money managers, who are rushing to check client lists for potential liabilities, a risk manager told industry portal «FinanceAsia».
Rival companies worry they could face a similar fate as BSI – a not entirely unrealistic scenario, according to Velisarios Kattoula of Poseidon Research. What happened to BSI could happen to virtually any other firm, according to Kattoula.
Banks appear to be overwhelmed with their due diligence and have until now only half-heartedly carried out the controls necessary to detect money-laundering, according to the specialist quoted by «FinanceAsia».
Heightened Acquisition Risk
BSI’s troubles are also a warning shot for companies that have grown quickly in the region by acquisitions, which bears a heightened risk of taking on clients with ill-gotten funds.
Swiss banks have been copious acquirers in Asia: Union Bancaire Privee swallowed Coutts International last year including $12 billion in Asian funds. Interestingly, Coutts has also been linked with 1MDB.
Zurich-based Julius Baer recently concluded the integration of the international private bank of Merrill Lynch, a move which bolstered the Swiss bank’s emerging market assets to nearly half its overall funds – much of it in Asia.
Local players like DBS have also been active acquirers: the Singapore-based bank bought Societe Generale’s private-banking activities in the region early last year.
M&A at a Standstill?
The money-laundering scandal also has implications for the current M&A boom on the Asian financial market: banks will think twice about bulking up on potentially dodgy assets through an acquisition in view of the resolute regulatory actions taken against BSI.
